The March crash sent stock markets spiralling lower, with the FTSE 100 down more than 30% at one point. Since then the market has bounced back to an extent, although the performance in the Footsie has been poor in comparison to the US market, which recently made new highs.
Due to this volatile market trading, significant turbulence has gripped the market. The risk of a second market crash has become a real concern for many as many shares have now obtained lofty valuations. This is heightened by the fact there has been a large rise in Covid-19 cases in both the UK and US over recent weeks and months.
Second crash risk
There has been a large amount of recent speculation regarding a second market crash and I believe there is good reason for this. There are still a significant number of Covid-related headwinds facing many listed companies.
This was shown by the recent actions taken by the UK government, where they introduced a lockdown across the whole of the UK. This has created a great deal of uncertainty as all non-essential shops, pubs and restaurants have been forced to close. Due to this uncertainty, investors may opt to take a more cautious approach. However, I believe there is one FTSE 250 share that will be a winner in both a bull and bear market.
IG Group (LSE: IGG) was a Covid-19 winner. As volatility gripped the market, IG saw client trading activity surge. Client activity was so strong in Q4 that IG was able to report its best ever year in terms of both revenues and profitability in 2020. This is significant because IG had experienced a large drop-off in revenues in 2019 as new ESMA regulations were introduced, which sent its shares spiralling lower by nearly 50%. Since then IG has recovered well and the shares are nearing all-time highs, which I believe they will break soon.
I also prefer IG in comparison to competitors due to the company’s low risk approach, which means IG hedges 99% of client positions, essentially allowing the company to take on nearly no risk. This means that even without the volatility created by Covid-19, IG can focus on building sustainable revenues over the long run through diversifying its offerings and fuelling geographic expansion. IG is achieving this through transitioning more clients to more profitable loyal professional clients and moving more traders to its stockbroking account which allows IG to build long term customer relationships.
Well positioned for second market crash
Under a second market crash, IG would actually benefit and is still currently benefiting from the volatility that is gripping the market and the impact that is having on client trading activity. I believe this extra cash generation will allow the FTSE 250 share to increase its already-tasty 6% yield in 2021. I’m a happy shareholder.
The post Concerned about market turbulence? I’d buy this FTSE 250 share appeared first on The Motley Fool UK.
Noah Riley owns shares in IG Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020